Tax residence in Russia

Russian personal income tax is just 13%, which tempts foreigners to become Russian tax residents.

HOW TO BECOME A TAX RESIDENT IN RUSSIA? MUST I GET RUSSIAN CITIZENSHIP FOR THIS?

Russians pay 13% personal income tax not because of being Russian citizens, but because of their “tax resident” status.

Tax resident status is not related to citizenship, residence permits or place of permanent residential registration. The only criterion is a stay in the country of more than 183 days in the last 12 months.

Only Russian tax residents pay a personal income tax of 13%, while non-residents pay a tax of 30%. In addition, tax residents of the Russian Federation can apply tax deductions, while non-residents cannot.

This means, for example, that when selling an apartment, firstly, a non-resident will pay not 13%, but 30%, and secondly, the tax base (the amount on which the tax will be calculated) would be not the difference between the purchase and sale costs, but the entire cost of the apartment.

Example:
A Russian tax resident bought an apartment 1 year ago for 1 million rubles and now sold it for 1.1 million. He will pay 13% tax and only on the difference (i. e., from 100,000 rubles) and the tax will be only 13,000 rubles.

And if a non-resident did the same, he will pay a tax of 330,000 rubles – 25 times more. The calculation is simple: we take 1.1 million rubles (without any deductions) and multiply by 30%.

AM I A TAX RESIDENT?

A person (whether a Russian or a foreign national) is recognized as a tax resident of the Russian Federation if their stay in Russia is at least 183 calendar days in 12 months in a calendar year, and these days can be intermittent, the main thing is that in the end it should be at least 183. Thus, the status may change throughout the year.

But there are exceptions to the rules when a person stays in Russia for less than six months, but still remains a tax resident of the Russian Federation, and these cases are as follows:
• When he/she was absent from the country due to treatment or study.
• If he/she is a military person or government employee and is on a business trip.
• If he/she performs job or other duties related to the work (or services) in offshore hydrocarbon fields.
• When there is an international double tax avoidance agreement with the country where the person is located abroad and at the same time is a tax resident in that country.

DOUBLE TAX AVOIDANCE AGREEMENTS

Until 2022, such agreements were signed by Russia with 84 countries. In a nutshell, a double tax avoidance agreement is an agreement between the governments of two countries that specifies the procedure for collecting taxes from taxpayers residing in one or both Contracting States.

For example, the Double Taxation Convention of February 15, 1994 between Russia the United Kingdom states (in Article 15) that wages and other similar remuneration received by a person domiciled in one Contracting State in relation to works for hire shall be taxable only in that State.

This provision contradicts the Tax Code of the Russian Federation, which states that a tax resident must pay taxes even on income received abroad. But the convention is international and takes precedence over our country's tax code. Thus, if you had received a salary in the UK, you would not have had to pay tax in Russia earlier. But this is all in the past.

Since 2022, the vast majority of those 84 agreements between Russia and other countries have either been suspended by Russia itself or denounced by the relevant states.

Now, for example, having earned money in the UK, you are required to pay taxes both there and in Russia, since tax residents of the Russian Federation are required to pay taxes on all income in Russia and abroad, again, unless there is a double taxation agreement.

Tax non-residents do not pay taxes on income outside Russia, but now pay 30% personal income tax on income in Russia (as long as international double taxation agreements are suspended).

Thus, we recommend to mind the number of days that you are not in Russia to know if you are considered a tax resident.



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